24-Apr-2018



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Supermarkets: Past, Present and Predictions

Past
In the early days of grocery retailing in America, an assistant fetched all items from shelves behind the merchant's counter while customers waited in front of the counter and indicated the items they wanted. In addition, most foods and dry groceries did not come in the individually wrapped consumer-size packages and an assistant had to weigh and wrap the precise amount desired by the consumer. American retailers found these practices were by nature very labor-intensive and therefore quite expensive. The shopping process was slow, as the number of customers who could be attended to at one time was limited by the number of clerks employed in the store.

In 1916, first Piggly Wiggly store opened in Memphis, Tennessee and developed a self-service grocery store. The Great Atlantic and Pacific Tea Company (A&P) was another successful early grocery store chain in Canada and the United States, and became common in North American cities in the 1920s. The general trend in retail since then has been to stock shelves at night so that customers, the following day, can obtain their own goods and bring them to the front of the store to pay for them. Although there were higher risks of shoplifting, the costs of appropriate security measures ideally outweighed by the increased economies of scale and reduced labor costs.

Early self-service grocery stores did not sell fresh meats and produce and it was only after 1920s these stores stated selling perishable items like meats and vegetables.

According to the Smithsonian Institution, a former Kroger employee, Michael J. Cullen, opened the first true supermarket in the United States on August 4, 1930, inside a 6,000 square foot (560 m²) former garage in Jamaica, Queens in New York City. The King Kullen store, operated under the slogan "Pile it high. Sell it low." At the time of Cullen's death in 1941, there were seventeen King Kullen stores in operation.

By 1950s, these supermarkets frequently issued trading stamps as incentives to customers. Today, most chains issue store-specific "membership cards," "club cards," or "loyalty cards". These typically enable the cardholder to receive special members-only discounts on certain items at checkout.

 

Present
Present day supermarkets are much larger and offer a wide variety of food and household merchandise, organized into departments. They typically comprises meat, fresh produce, dairy, and baked goods departments along with shelf space reserved for canned and packaged goods. Most supermarkets also sell a variety of other household products that are consumed regularly, such as alcohol (where permitted), household cleaning products, medicine, clothes, pet supplies and some sell a much wider range of nonfood products.

The traditional suburban supermarket occupies a large amount of floor space, usually on a single level, and is located near a residential area for convenience of their consumers. Its basic appeal is the availability of a broad selection of goods under a single roof at relatively low prices. Other advantages include ease of parking and the convenience of shopping hours that extend far into the evening or even 24 hours a day. These supermarkets usually make massive outlays of newspaper and other advertising and often present elaborate in-store displays of products. These supermarkets often are part of a corporate chain that controls the company owned as well franchised stores and supplies to these stores are made by large centralized distribution centers (CDC).

Supermarkets usually offer products at low prices but certain products typically staple foods such as bread, milk and sugar are often sold on less than their usual market price to attract more consumers. Usually there are two pricing strategies; Every Day Low Price (EDLP) and High Low (HL); and to maintain a profit, supermarkets attempt to make up for their lower margins in EDLP items by selling more of higher-margin HL items.

Most supermarkets are similar in design and layout and fresh vegetables tends to be located near the entrance of the store. Milk, bread, and other essential staple items are usually situated toward the rear of the store to reduce thawing and to maximize the customer's time spent in the store, strolling past other items and capitalizing on impulse buying. Supermarkets use stock rotation, the practice of moving products with an earlier sell-by date to the front of a shelf so they get picked up and sold first. Many stores also place consumer durable items and toys near the checkouts to attract families with children waiting in checkout queues.

In the United States, major-brand supermarkets often demand slotting fees from suppliers in exchange for premium shelf space and/or better positioning (such as at eye-level, on the checkout aisle or at a shelf's "end cap"). This extra supplier cost (up to $30,000 per brand for a chain for each individual SKU) may be reflected in the cost of the products offered. Some critics have questioned the ethical and legal propriety of slotting fee payments and their effect on smaller suppliers.

More and more every day facilities like banks, cafés, childcare centers/creches, photo processing, video rentals, pharmacies, and/or gas stations are being added to bigger supermarkets to provide their customers one stop shop convenience. A larger full-service supermarket like this combined with a department store is sometimes known as a hypermarket.

Indian-owned supermarket Subhiksha is one of the first and the largest retail chain in the country. Started in 1997 as a single store entity in South Chennai, it is now present nationally across 1000 outlets and spread across more than 90 cities selling everything from vegetables to mobile phones.

India's largest private-sector company, Reliance Industries Limited (RIL) also ventured into the retailing business in 2006 by opening the fresh food "Reliance Fresh" chain of stores in major cities across India. Other major supermarkets include 6Ten, Spencer and More. Many other supermarket brands have joined the race but supermarkets in India are still fragmented and struggling to provide a delightful experience to its customers. Supply-chain constraints, unorganized real estate markets, irrational tax structures and shortage of quality retail professionals are some of the factors which are holding back the growth of organized retail in India specially in supermarkets sector.

 

Predictions
The supermarket sector is witnessing a major corporate push with large domestic retailers and foreign giants establishing chains of supermarkets.

India's retail industry, both organized and unorganized, is worth $300 billion at present and is expected to grow to a staggering US$450 - US$500 billion by 2110. A study conducted by Mumbai-based brokerage Edelweiss Capital in February'08 had said that organized retail would form 15% of the retail sales by March 2011 from 4.1% now. But Deloitte's study says that organized retail grew at a scorching pace in 2007, going to 8% of total retail sales from 5% in 2006.

As the Indian government continues to reform and liberalize the market, retail giants like UK's Tesco, France's Carrefour and American Wal-Mart are looking to make a foray into the Indian retail market.

Wal-Mart has signed a deal with Indian telecom leaders Bharti and is ready to make a dent by end of 2008. But it will not be an easy ride for Wal-Mart, according to Wharton professor of marketing David Bell says "Wal-Mart will have to take a close look at the extent to which they will have to 'customize' their approach to local market conditions. They have had some failures internationally, like in Germany and Brazil, because they under-estimated the extent to which someone else already held their market position for example, Aldi in Germany."

But like telecom sector, when the supermarket attains industry status, there would not be many differentiating factors in terms of pricing, layout, variety and service quality. Likewise, once foreign retail giants get established in retail market, each one would carve a separate niche of their own with their own sets of brands and suppliers and would try establish their own customer base by providing them royalty cards.

Big question now is that will entry of all these big supermarket players work in the long run or they will under go a Lose-Lose situation in the long run. Land in India is at a premium and infrastructural facilities are minimal. Logistically, it is not easy to incorporate different taxation structures and other demographic factors in formation of supply-chain. The absences of retail professionals at mid-level management and shortage of retail educators who can educate form their real experience. All these factors indicate that supermarket retail chains are unlikely to enjoy a high-profit margins in the near future.

For now, consumers in India may like supermarkets or may not like supermarkets but they can not ignore these supermarkets.

 

Author: Raj Jain, Consultant - Franchise and EBO Retail

 



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